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Chris Hannant: Govt has shot itself in the foot on guidance

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The Treasury has recently published its conclusions on how the Freedom and Choice in Pensions consultation should be taken forward. But some of the proposals are puzzling given the Government’s overall policy objectives. 

I fully support the intention to provide choice for people coming to retirement. Retirement in 2014 is very different from 20 years ago when people worked for an allotted period and retired with an income based on service and salary. As more responsibility has shifted to the individual, people need more flexibility to manage the assets they have acquired. For many, retirement will be a phased process, not a one-off event.

With greater responsibility comes greater choice. Managing your finances for an unknown period, especially when not greatly adding to the assets acquired, is a complex challenge. The Government recognises that people will need more help and the guidance guarantee is designed to help them understand the choices available. But guidance will not make those choices for them. If they want support with that, they will need advice.

The Government recognises this too and has said the FCA should look at what can be done to reduce the cost of delivering advice. But we now have a proposal to ask advisers to pay for the cost of the guidance, which will, of course, increase the cost of advice. 

In terms of achieving the Government’s objective, the latest report looks like shooting itself in the foot. Apfa will discuss these proposals with the Treasury to demonstrate that any levy should be equitable and proportionate to those who created the need for reform and those who will ultimately benefit from it.

Chris Hannant is director general at Apfa 

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  1. I agree with the sentiments of this article, though I think the chances of the Treasury backing down are extremely remote. To do so would be effectively to condemn the idea as a cock up on the part of George Osborne (which it is), basically because his budget figure of £20m was swiftly exposed as being hopelessly inadequate and there was no plan anyway as to how it would be allocated to those incurring the costs of providing the guidance. Proposals for a redeemable voucher system have been studiously ignored, whilst providers aren’t equipped to give guidance so, as usual, the road leads to the intermediary sector.

    So, having realised that the budget for providing this guidance is going to need to be increased substantially, Osborne’s choices for finding the extra money are either for the government’s commitment to be raised or (much easier) for it to be dumped onto the industry.

    Both, of course, demonstrate fundamental ignorance of the fact that most intermediaries don’t charge prospective clients for their initial consultation and that, in the vast majority of cases, guidance will point towards the need for advice specific to the particular circumstances of each client. How can it be otherwise? In this brave new and evolving world of unfettered access to pension funds, it’s going to be tricky enough for experienced advisers to formulate the best strategies, so what hope for inexperienced clients? We’re going to be forced to pay for a superfluous stage in a process that’s likely to lead clients to our door anyway. Where’s the logic or fairness in that?

    And if, as I believe, the Treasury isn’t going to go against what George Osborne (who is, effectively, the Treasury’s CEO) has already announced, there’s simply no mileage in APFA’s proposed strategy of discussing the issue with it [the Treasury]. Is there? It may sound very grand for APFA to announce that it’s going to be making representations to the Treasury but, if the Treasury’s not going to take any notice, what’s the point?

    What APFA should be doing (IMHO) is urging its membership to contact their MP’s explaining why this whole guidance plan is an ill-conceived and un-thought-through waste of time and our money. Hopefully, this will lead to the relevant government ministers receiving representations from many different sources which, one would hope, will carry considerably more weight than just one body talking to the Treasury.

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